Investment Policy - Aashe · Berea College Investment Policy Page 2 INTRODUCTION The mission of Berea College is virtually unique in higher education in America. The College, founded

Berea College Investment Policy Page 1

Investment Policy

Amended and Restated as of February 23, 2013


INTRODUCTION

The mission of Berea College is virtually unique in higher education in America. The College, founded in

1855, has a deeply rooted inclusive Christian heritage and educational philosophy expressed in “The Great

Commitments of Berea College” which state:

The College, founded by ardent abolitionists and radical reformers, continues today as an educational

institution still firmly rooted in its historic purpose “to promote the cause of Christ.” Adherence to the

College’s spiritual foundation, “God has made of one blood all peoples of the earth,” shapes the College’s

culture and programs so that students and staff alike can work toward both personal goals and vision of a

world shaped by Christian values such as the power of love over hate, human dignity and equality, and

peace with justice. This environment frees persons to be active learners, workers, and servers as members

of the academic community and as citizens of the world. The Berea experience nurtures intellectual,

physical, aesthetic, emotional, and spiritual potentials and with those the power to make meaningful

commitments and translate them into action.

To achieve this purpose, Berea College commits itself:

To provide an educational opportunity primarily for students from Appalachia, black and

white, who have great promise and limited economic resources.

To provide an education of high quality with a liberal arts foundation and outlook.

To stimulate understanding of the Christian faith and its many expressions and to

emphasize the Christian ethic and the motive of service to others.

To provide all students, through the labor program, experiences for learning and serving

in the community, and to demonstrate that labor, mental and manual, has dignity as well

as utility.

To assert the kinship of all people and to provide interracial education with a particular

emphasis on understanding equality among blacks and whites.

To create a democratic community dedicated to education and equality for women and

men.

To maintain a residential campus and to encourage in all members of the community a

way of life characterized by plain living, pride in labor well done, zest for learning, high

personal standards, and concern for the welfare of others.

To serve the Appalachian region primarily through education but also by other

appropriate services.

The investment of Berea’s endowment should be made with sensitivity to these Great Commitments, the

ethical values they embody, and the significant dependence of the operating budget on endowment

spendable return.

Because the early students of Berea were freed slaves and poor Appalachian youth, the College stopped

charging tuition in 1892 and continues that practice today. All students are expected to work in Berea’s

Labor Program that allows students to earn some of their room and board costs. To finance this exceptional

program of full tuition scholarships, Berea College established a policy in 1920 that places all unrestricted

bequests into the College’s quasi endowment. This policy has helped the College fund approximately 75%

of its educational and general operating budget from the spendable return of the combined quasi and

endowment pool. Unlike many colleges and universities, Berea’s endowment is the centerpiece of the


funding strategy for its educational mission of learning, labor and service. In a real sense, Berea’s

endowment is its “tuition replacement fund.” Consequently, Berea’s investment strategy must promote

both real growth and acceptable levels of risk if the College is to maintain its no tuition policy.

This investment policy (the “Investment Policy”) has been carefully considered and constitutes a series of

guidelines for management in perpetuity of an investment program consistent with the objectives and

important mission of Berea College. It is a living document that may be modified over time by the

Investment Committee with the approval of the Board of Trustees, but while in force, the Investment

Committee, Board, and those who assist the College in managing and investing its endowment must

comply with its terms. Consequently, current and prospective members of the Investment Committee and

those who assist the Investment Committee should thoroughly understand the Policy to ensure compliance

and to establish a shared philosophical base from which all modifications are made.

This Investment Policy is strategic in nature and is augmented by a written investment plan developed by

the Chief Investment Officer and approved by the Investment Committee (the “Investment Plan” or the

“Plan”). The Investment Plan will set forth specific asset allocation targets and ranges and can be altered as

often as necessary. While the Investment Policy is subject to approval by the Board of Trustees, the

Investment Plan may be reviewed and revised from time to time by action of the Investment Committee.

The current Investment Plan can be found in Appendix A.

Investment Objectives

Working within the spirit of the Great Commitments of Berea College, the Investment Committee, acting

on behalf of the Board of Trustees, will supervise a long-term investment program for the College’s

Endowment Fund, hereafter referred to as the “Fund”. The Berea College Investment Program (the

“Investment Program”) will seek three objectives:

1. Preserve the inflation-adjusted value, as defined by the CPI-U (non-seasonally adjusted), of the

Fund through contributions, investment returns and prudent spending formulas.

2. Produce an average annual investment return over time that provides for real growth (inflation

adjusted by the CPI-U) in assets net of the distributions defined by the spending formula within

a reasonable and tolerable level of risk as defined by the Investment Committee.

3. Achieve competitive returns relative to appropriate benchmarks.

These objectives will be measured over a complete market cycle with emphasis on preserving capital and

reducing volatility through prudent diversification. In order to achieve these objectives, the Investment

Committee must be cognizant of the current spending policy of the College, so it has been included as an

appendix to this document for reference. Interim results will be reviewed with the understanding that an

important priority of the assets is providing for future generations. Due to capital market volatility, the

return may vary significantly over shorter periods of time.

Fiduciary Responsibilities

The Board of Trustees and its Investment Committee have a legal responsibility to manage the Fund in

compliance with the requirements of Kentucky law, including, but not limited to, the provisions of the

Kentucky Non-Profit Corporation Act and the Kentucky Uniform Prudent Management of Institutional

Funds Act, both found in Chapter 273 of the Kentucky Revised Statutes. (The current text of the Kentucky

Uniform Prudent Management of Institutional Funds Act can be found in Appendix D).

The College makes spending withdrawals from the Fund based on an endowment spending formula and

policy. The Berea College endowment spending policy and formula is found in Appendix C. The Board of

Trustees has a fiduciary responsibility to comply with the restrictions imposed by the donors of restricted

endowment funds (true endowment funds). There are no similar legal requirements limiting the

appropriations from the Berea College quasi endowment funds (also referred to as Tuition Replacement


Funds). The quasi endowment funds are, however, subject to the same standards governing investment

authority and standard of conduct for investment and management as pertain to true endowment funds.

The Investment Committee, within the broad framework of the College’s By Laws, delegated

responsibilities and policies established by the Board of Trustees, will have direct responsibility for the

oversight and management of the Fund and for the establishment of investment policies, plans and

procedures. The Investment Committee, acting pursuant to authority delegated by the Board of Trustees,

shall exercise the power to employ or discharge financial agents or advisors with the approval of the full

board.

Oversight of the Fund’s assets will be performed by a tiered fiduciary structure. The Berea College

Investment Committee, referred to herein as the Governing Fiduciary, will have ultimate responsibility for

establishing the long term goals, objectives and guidelines that will govern the management of the Fund.

The Managing Fiduciary, or Chief Investment Officer, appointed by the Governing Fiduciary, will be

responsible for developing and implementing the investment program in accordance with this Investment

Policy and the written Investment Plan attached hereto as Appendix A and to direct, monitor and supervise

the various Operating Fiduciaries, hereinafter defined, and report regularly to the Governing Fiduciary.

Operating Fiduciaries are defined as qualified persons or organizations that provide specialized

professional services necessary to fulfill functional and administrative requirements of the Fund.

Governing Fiduciary

As the Governing Fiduciary, the Investment Committee’s responsibilities include:

1. Recommending revisions in the Investment Policy to the Board of Trustees of the College.

2. Appointing and overseeing the Managing Fiduciary who shall have responsibility for the

development and recommendation of the Fund’s investment strategies and discretion for

implementing these investment strategies in accordance with the Investment Plan attached hereto

as Appendix A.

3. Performing a periodic review of the Managing Fiduciary, but no less than every five years, unless

the period is specifically extended by a vote of the Investment Committee.

4. Establishing one or more custody accounts with a custodian to maintain Fund assets.

5. Periodically reviewing the Fund’s asset allocation.

6. Delegating to the Managing Fiduciary specific administrative and operational responsibilities

dealing with the investment and reinvestment of the Fund’s assets, as outlined in the Managing

Fiduciary Client Agreement.

7. Approving the placement of Fund assets into Private Equity, Hedge Fund and Structured Note

vehicles.

8. Monitoring compliance with this Investment Policy.

9. Reviewing periodically the following subjects with the Managing Fiduciary:

a. Progress toward the stated performance objectives documented in this Policy.

b. Current asset allocation of all assets included in the Fund.

c. Investment performance, including comparisons to appropriate benchmarks.

Managing Fiduciary

The Managing Fiduciary, or Chief Investment Officer, will have day-to-day responsibility and discretion

for developing, recommending and implementing the Investment Plan for the Fund.


As the Managing Fiduciary, the responsibilities of the Chief Investment Officer include:

1. Reviewing, analyzing, developing and recommending changes to the Investment Policy and Plan,

including conducting asset allocation studies and evaluating new investment strategies.

2. Monitoring and managing the Fund’s actual asset allocation weights within the strategic targets

and ranges defined by the Investment Plan.

3. Selecting, appointing and monitoring specialist investment managers consistent with the

Investment Policy and Investment Plan, including periodically making adjustments to manager

allocations to best meet the Fund’s investment objectives. Providing administrative and

operational discretion to support the Investment Policy dealing with the investment and

reinvestment of the Fund’s assets.

4. Allocating contributions and other cash flows to investment managers or to other investment

accounts as established.

5. Taking all actions with respect to investment managers including hiring and terminating,

monitoring and reviewing of investment manager contracts.

6. Setting investment guidelines for investment managers and monitoring their compliance and

reviewing these guidelines and their compliance with the Governing Fiduciary to the extent the

account assets are placed in a separately managed account.

7. Meeting with investment managers and evaluating their investment performance.

8. Making recommendations to the Governing Fiduciary regarding the placement of Fund assets into

Private Equity, Hedge Fund and Structured Note vehicles.

9. Reporting and meeting with the Governing Fiduciary as directed by the Governing Fiduciary.

10. Providing a periodic review of the overall cost of maintaining the Fund’s investment program as

directed by the Governing Fiduciary.

11. Providing a review of the liquidity profile of the Fund at each regularly scheduled Investment

Committee meeting.

The Master Custodian

The master custodian, usually a major banking institution, will hold in safekeeping all liquid assets of the

Fund in the name of Berea College. Independent managers supervising liquid, publicly traded investments

regardless of location will settle “delivery versus payment” with the master custodian. Illiquid assets,

whether or not they are held by the master custodian, will be tracked for the purpose of consolidating

reports.

Specific responsibilities include:

1. Safeguarding all assets under custody.

2. Transferring funds from a Berea College account to another pre-designated, pre-approved bank

account in the name of Berea College, when properly requested by the Chief Investment Officer

and authorized by a Berea College official having appropriate authority.

3. Accounting for all stock splits and other corporate actions.

4. Producing timely and accurate monthly reports listing all assets held by the Fund and reflecting

current pricing for any transactions that have taken place during the reporting period.

5. Responding promptly and accurately to periodic reporting requests from the Chief Investment

Officer or the Vice President for Finance.

6. Producing monthly performance reports.


The Vice President for Finance

The Vice President for Finance is responsible for administrative support of the Investment Committee and

for working closely with the Investment Committee and Managing Fiduciary to carry out the Investment

Plan.

Specific responsibilities include:

1. Carrying out the directions of the Investment Committee and acting as an authorized signatory on

behalf of the College when entering into investment agreements and related documents, after

appropriate legal review.

2. Acting as liaison between the Managing Fiduciary, the Office of Financial Affairs, and the

Investment Committee.

3. Maintaining detailed records for all endowment funds and investments.

4. Calculating the unit value of the commingled Fund.

5. Supervising receipt and disbursement of monies associated with the Fund.

6. Being informed, on a continuing basis, of the activities of the Managing Fiduciary and the

Investment Committee.

7. Conducting periodic reviews of fees relating to the Managing Fiduciary.

Asset Allocation

To achieve the investment objectives of the Fund, an asset allocation study was conducted to establish

percentage ranges for each asset class eligible for investment within the portfolio. The asset allocation

study analyzed the expected return, risk and correlation of several asset classes, as well as the expected

return and risk of various portfolios of these asset classes. The study not only included asset classes and

their expected return and correlation matrix but also included any constraints applied to the optimization

along with the overall expected return of the Fund and its overall volatility. The expected return and risk of

various portfolios were evaluated in terms of their ability to best meet the College’s long-term investment

objectives. Based upon this analysis, an asset allocation policy including ranges for each asset class was

constructed that best meets those objectives. The asset allocation policy is contained in the Investment Plan

shown in Appendix A. This Investment Plan may be amended upon a recommendation from the Managing

Fiduciary subject to the approval of the Governing Fiduciary.

Rebalancing Procedures

The Managing Fiduciary will periodically rebalance the Fund within the asset allocation ranges set forth in

Appendix A. However, the Managing Fiduciary will need Governing Fiduciary approval prior to any

rebalancing within the Private Equity, Hedge Funds or Structured Note vehicles. The need for rebalancing

should be addressed at least quarterly, or more frequently if warranted by events. Rebalancing should be

done only after considering the effect that transaction costs and market impact will have on the overall

portfolio.

Although it is the policy of the Managing Fiduciary to invest assets in accordance with the maximum and

minimum ranges for each asset class, as set forth in Appendix A, rapid unanticipated market movements or

cash flows may cause the asset mix to temporarily fall outside those ranges.

Investment Manager Structure

The assets in each asset class will be invested in accounts managed by one or more independent, third party

investment managers that specialize in the specific asset class. Investment managers of varying styles (e.g.

growth, value, active, passive, etc.) may be employed within each asset class. Multiple investment


managers may be utilized within an asset class at the discretion of the Managing Fiduciary. Performance

results for each asset class will be included in the Managing Fiduciary’s report to the Governing Fiduciary.

Investment managers will be selected by the Managing Fiduciary to manage assets of the Fund based upon

a quantitative and qualitative review process. The investment vehicles used to employ a strategy may

include registered 1940 Act Funds, separately managed accounts, Common Trust Funds, Private Funds, etc.

depending on the asset class and investment strategy. The review process will consider criteria including

but not limited to the people, the investment philosophy, the investment process, the investment

performance, the organization and the operations of the firm. The investment manager’s strategy will be

evaluated regarding its effectiveness in complementing the Fund’s other investment managers in order to

achieve the desired result.

Guidelines for Traditional Investment Managers

Traditional investment managers that are appointed to manage assets for the Fund through separately

managed accounts will be provided investment guidelines as appropriate. In general, the guidelines will

stipulate the types of securities in which the account may invest, the general characteristics for the portfolio

and/or the performance benchmark and objectives. The specific guidelines may vary depending upon the

asset class or sub-asset class. These guidelines do not pertain to alternative investments. The guidelines

will conform to the following requirements:

1. Investment managers shall generally remain fully invested, except for transitional cash that is

needed for cash flows and trading, and shall be invested to maintain risk characteristics consistent

with their benchmark and their asset class style.

2. Investment portfolios shall be diversified across managers, asset classes, and styles.

3. Investment managers shall invest the majority of their assets in securities that reflect their asset

class assignment.

4. The investment managers may invest in fully collateralized derivatives (swaps or futures) to

maintain market exposure, provide liquidity, and hedge currency. Notwithstanding the previous

sentence, a manager may utilize derivatives as part of their strategy to gain exposure to certain

markets and sectors or to maintain portfolio risk. Derivatives may not be used to introduce

leverage into the portfolio.

5. Investment managers may invest in private placements (excluding 144a issues) with the approval

of the Investment Committee.

6. The Fund may invest in commingled funds, in recognition of the benefits of commingled funds as

investment vehicles (i.e., the ability to diversify more extensively than in a small, direct

investment account and the lower costs which can be associated with these funds). The

Investment Committee recognizes that they may not be permitted to give specific policy directives

to a fund whose policies are already established; therefore, the Investment Committee is relying on

the Managing Fiduciary to assess and monitor the investment policies of such commingled funds.

The commingled pools, exchanged traded funds, and limited partnerships may have specific

policies that deviate from the guidelines established in this Policy Statement that govern assets

supervised by the Managing Fiduciary.

7. Investment managers are permitted to trade in publicly traded Real Estate Investment Trusts

(REIT’s), but cannot invest in private real estate transactions without the approval of the

Governing Fiduciary

Alternative Investment Guidelines

The Fund may invest in private real estate, limited partnership interests and other alternative investments,

including private equity, hedge funds, and structured notes only with the prior approval of the Governing

Fiduciary. The Governing Fiduciary, at the request of the Managing Fiduciary, will determine the

appropriateness of each investment on a case-by-case basis, taking into consideration the relevant analysis


of the investment as provided by the Managing Fiduciary, including the illiquidity of the investment, the

size of the investment, etc. in addition to the Fund’s overall allocation to alternative investments.

Performance Benchmarks

To evaluate investment performance of the Fund's portfolio, three measures will be used for long-term

comparison:

1. The combined return of the S&P 500 Index and the Barclays Capital Aggregate Bond Index

weighted according to the equity/fixed income allocation of the portfolio; and

2. The combined return of the MSCI All Country World Index (ACWI) and the Barclays Capital

Aggregate Bond Index weighted according to the equity/fixed income allocation of the

portfolio; and

3. The common and appropriate industry benchmarks for the individual asset classes weighted

according to the targeted asset allocation policy.

Appendix B includes a list of all asset class and investment manager benchmarks to be used in evaluating

performance.

Commingling and Unitizing

The Fund will be commingled and unitized.

Exceptions to this policy include:

1. A donor who specifically directs that a gift be separately invested; or

2. A gift in a form that does not have a ready market, is illiquid or for other reasons that make

the asset an unacceptable holding in the Fund.

Every addition to the Fund shall receive units in the Fund based upon the market value of the gift and the

unit value of the Fund on the date the gift is added to the Fund. New gifts or other additions purchase units

in the Fund at the calendar quarter-end unit value of the Fund prior to the date of the gift. For example,

gifts received between April 1 – June 30 purchase units in the Fund at the March 31 unit value.

Chief Investment Officer

With the approval of a majority of the College’s Board of Trustees, the Governing Fiduciary, will, from

time to time, appoint a Chief Investment Officer (Managing Fiduciary) for the Fund, which shall serve at

the pleasure of the Governing Fiduciary. The Governing Fiduciary may also discharge a Chief Investment

Officer, with the approval of a majority of the full board. The Chief Investment Officer reports directly to

the Investment Committee, in its capacity as Governing Fiduciary for the Fund, and will be responsible and

have discretion for implementing the Investment Policy and Plan contained herein, monitoring the overall

investment program and investment managers, recommending changes to the Investment Policy and Plan

and other duties as discussed in this document. The duties, authorities, responsibilities, liabilities and fees

of the Chief Investment Officer (Managing Fiduciary) shall be articulated in a separate Investment

Management Agreement.

Conclusion

Through spendable endowment return, the perpetual pool of endowment investments provides tremendous

operating budget support for the College. This policy is intended to help guide the College in the

investment and management of its endowment in order to ensure that the College meets its objectives in

carrying out its mission. The Board of Trustees, Investment Committee, College financial staff, and the


Managing Fiduciary have the fiduciary responsibility to oversee the College endowment in a prudent

manner through regular benchmarking and review of this Investment Policy and the Investment Plan to

help maximize the overall benefits to the College within appropriate levels of risk.


Appendix A – Investment Plan


Appendix B – Asset Class and Manager Benchmarks

Asset Class Benchmark

US Stocks – Mega Cap Value Russell 200 Value Index

US Stocks – Mega Cap Growth Russell 200 Growth Index

US Stocks – Large Cap Value Russell 1000 Value Index

US Stocks – Large Cap Growth Russell 1000 Growth Index

US Stocks – Large Cap Core Russell 1000 Index

US Stocks – Small Cap Value Russell 2000 Value Index

US Stocks – Small Cap Growth Russell 2000 Growth Index

US Stocks – Small Cap Russell 2000 Index

International Stocks – Developed MSCI EAFE Index

International Stocks – Emerging MSCI Emerging Markets Index

Commodities 50% DJ AIG Commodity Index/50% MSCI ACWI

Commodity Producers Index

Hedge Funds HFRI FOF Diversified

Private Equity S&P 500 Index + 5%

Fixed Income – U.S. Government Securities Barclays Capital U.S. Government Index

Fixed Income – U.S. Securitized Securities Barclays Capital U.S. Securitized Index

Fixed Income – U.S. Corporate Securities Barclays Capital U.S. Corporate Index

Treasury Inflation Protected Securities (TIPS) Vanguard TIPS Fund

Opportunistic Fixed Income Barclays Capital US Corp HY BB/B 2% Issuer

Real Estate DJ Wilshire US Real Estate Index

Cash 91-Day Treasury Bills


Appendix C – Endowment Spending Policy & Formula

I. Endowment Spending Policy

The spendable return for the College’s commingled long-term pooled investments is determined annually

on the basis of the following Endowment Spending Formula, upon recommendation of the Administrative

Committee and the approval of the Finance Committee and Board of Trustees. This income is allocated to

the specific pooled endowment funds based on the respective number of units assigned to each of those

funds.

Subject to the foregoing, decisions concerning the accumulation or appropriation for expenditure of the

income or principal of any individual endowed fund shall be governed by the Kentucky Uniform Prudent

Management of Institutional Funds Act, KRS 273.600 to 273.645. Spendable income for long-term

investment funds, which are not included in the investment pool and which are separately invested due to

donor restrictions, being outside the control of the College, or other similar situations, shall be the actual

income earned by those investments for those respective funds and spent in accordance to the restrictions of

those funds.

II. Endowment Spending Formula

A. Overview Spendable return for the pooled endowment funds shall be determined annually based on a weighted

formula taking into account both the prior year’s spendable return and the recent market performance of the

long-term pooled investments. The purpose of this formula is to allow Berea College to have prudent and

adequate annual support for its educational mission, as well as to preserve the principal and significant

gains of the pooled endowment funds in an appropriate manner.

In any given year, if spendable income from this formula results in income in excess of the demonstrated

operating budgetary needs of the College, then these excess funds are to be placed in reserve funds to be

used for specific current or future capital project or program needs (e. g. TCERF and Capital and Plant

reserves). Expenditures of these funds must be reported to and approved by the Board of Trustees.

Realizing, too, that in any given year, spendable income from this formula could result in income

inadequate to meet the College’s needs, there are provisions, with the approval of the Board of Trustees, for

adjustment of this formula to allow for adequate income for support of the College.

B. Formula The amount available for spending per unit from the pooled endowment funds shall be calculated by taking

the prior year’s spendable return and multiplying it by the annual change in the Consumer Price Index for

all Urban Consumers compiled by the U. S. Department of Labor, Bureau of Labor Statistics (CPI) for the

previous twelve month period plus 0.5% multiplied by a weighting factor of 70%. Added to this amount is

5% of the average market value of the pooled investments for the immediately preceding 6 calendar

quarters multiplied by a weighting factor of 30%. To help maintain intergenerational equity and ensure a

prudent level of spending, if the endowment spendable return calculated under this formula is less than

4.0% or more than 6.0% of the prior June 30 market value of the pooled endowment, the Board of Trustees

shall decide whether to make any adjustments to the endowment spendable return for the current year. This

calculation is expressed as follows:


[(Prior Year Endowment Spendable Return) X (1+CPI+.005) X .70]

+

[(6 Qtr. Avg. Market Value X .05) X .30]

=

Next Fiscal Year Endowment Spendable Return

In each budget year the requested support for Educational and General Expenditures shall be justified

through the budget approval process. In years where it is determined that the unrestricted spendable

income from the endowment pool is in excess of the justified operational budgetary needs of the College,

such excess funds shall be placed in appropriate reserve funds (e. g. TCERF and Capital and Plant

reserves), to be utilized based on the recommendation of the Administration and with the approval of the

Board of Trustees. In all years, the restricted endowment funds shall be allocated their full allocations

under the spending formula.


Appendix D - Kentucky Uniform Prudent Management of Institutional Funds Act

Kentucky Uniform Prudent Management of Institutional Funds Act

273.600 Definitions for KRS 273.600 to 273.645.

In KRS 273.600 to 273.645:

(1) "Charitable purpose" means the relief of poverty, the advancement of education or religion, the

promotion of health, the promotion of a governmental purpose, or any other purpose the

achievement of which is beneficial to the community;

(2) "Endowment fund" means an institutional fund or part thereof that, under the terms of a gift

instrument, is not wholly expendable by the institution on a current basis. The term does not

include assets that an institution designates as an endowment fund for its own use;

(3) "Gift instrument" means a record or records, including an institutional solicitation, under which

property is granted to, transferred to, or held by an institution as an institutional fund;

(4) "Institution" means:

(a) A person, other than an individual, organized and operated exclusively for charitable

purposes;

(b) A government or governmental subdivision, agency, or instrumentality, to the extent that

it holds funds exclusively for a charitable purpose; or

(c) A trust that had both charitable and noncharitable interests, after all noncharitable

interests have terminated;

(5) "Institutional fund" means a fund held by an institution exclusively for charitable purposes. The

term does not include:

(a) Program-related assets;

(b) A fund held for an institution by a trustee that is not an institution; or

(c) A fund in which a beneficiary that is not an institution has an interest, other than an

interest that could arise upon violation or failure of the purposes of the fund;

(6) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited

liability company, association, joint venture, public corporation, government or governmental

subdivision, agency, or instrumentality, or any other legal or commercial entity;

(7) "Program-related asset" means an asset held by an institution primarily to accomplish a charitable

purpose of the institution and not primarily for investment; and

(8) "Record" means information that is inscribed on a tangible medium or that is stored in an

electronic or other medium and is retrievable in perceivable form.

273.605 Standard of conduct in managing and investigating institutional fund.

(1) Subject to the intent of a donor expressed in a gift instrument, an institution, in managing and

investing an institutional fund, shall consider the charitable purposes of the institution and the

purposes of the institutional fund.


(2) In addition to complying with duty of loyalty imposed by law other than in KRS 273.600 to

273.645, each person responsible for managing and investing an institutional fund shall manage

and invest the fund in good faith and with the care an ordinarily prudent person in a like position

would exercise under similar circumstances.

(3) In managing and investing an institutional fund, an institution:

(a) May incur only costs that are appropriate and reasonable in relation to the assets, the

purposes of the institution, and the skills available to the institution; and

(b) Shall make a reasonable effort to verify facts relevant to the management and investment

of the fund.

(4) An institution may pool two (2) or more institutional funds for purposes of management and

investment.

(5) Except as otherwise provided by a gift instrument, the following rules apply:

(a) In managing and investing an institutional fund, the following factors, if relevant, shall be

considered:

1. General economic conditions;

2. The possible effect of inflation or deflation;

3. The expected tax consequences, if any, of investment decisions or strategies;

4. The role that each investment or course of action plays within the overall

investment portfolio of the fund;

5. The expected total return from income and the appreciation of investments;

6. Other resources of the institution;

7. The needs of the institution and the fund to make distributions and to preserve

capital; and

8. An asset's special relationship or special value, if any, to the charitable purposes

of the institution;

(b) Management and investment decisions about an individual asset shall be made not in

isolation but rather in the context of the institutional fund's portfolio of investments as a

whole and as a part of an overall investment strategy having risk and return objectives

reasonably suited to the fund and to the institution;

(c) Except as otherwise provided by law other than KRS 273.600 to 273.645, an institution

may invest in any kind of property or type of investment consistent with this section;

(d) An institution shall diversify the investments of an institutional fund unless the institution

reasonably determines that, because of special circumstances, the purposes of the fund

are better served without diversification;

(e) Within a reasonable time after receiving property, an institution shall make and carry out

decisions concerning the retention or disposition of the property or to rebalance a

portfolio in order to bring the institutional fund into compliance with the purposes, terms,


and distribution requirements of the institution as necessary to meet other circumstances

of the institution and the requirements of KRS 273.600 to 273.645; and

(f) A person that has special skills or expertise, or is selected in reliance upon the person's

representation that the person has special skills or expertise, has a duty to use those skills

or that expertise in managing and investing institutional funds.

273.610 Appropriation for expenditure or accumulation of endowment -- Rules of

construction.

(1) Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for

expenditure or accumulate so much of an endowment fund as the institution determines is prudent

for the uses, benefits, purposes, and duration for which the endowment fund is established. Unless

stated otherwise in the gift instrument, the assets in an endowment fund are donor-restricted assets

until appropriated for expenditure by the institution. In making a determination to appropriate or

accumulate, the institution shall act in good faith, with the care that an ordinarily prudent person in

a like position would exercise under similar circumstances, and shall consider, if relevant, the

following factors:

(a) The duration and preservation of the endowment fund;

(b) The purposes of the institution and the endowment fund;

(c) General economic conditions;

(c) The possible effect of inflation or deflation;

(d) The expected total return from income and the appreciation of investments;

(e) Other resources of the institution; and

(f) The investment policy of the institution.

(2) To limit the authority to appropriate for expenditure or accumulate under subsection (1) of this

section, a gift instrument must specifically state the limitation.

(3) Terms in a gift instrument designating a gift as an endowment, or a direction or authorization in

the gift instrument to use only "income," "interest," "dividends," or "rents, issues, or profits," or

"to preserve the principal intact," or words of similar import:

(a) Create an endowment fund of permanent duration unless other language in the gift

instrument limits the duration or purpose of the fund; and

(b) Do not otherwise limit the authority to appropriate for expenditure or accumulate under

subsection (1) of this section.

273.615 Delegation of management and investment functions.

(1) Subject to any specific limitation set forth in a gift instrument or in law other than KRS 273.600 to

273.645, an institution may delegate to an external agent the management and investment of an

institutional fund to the extent that an institution could prudently delegate under the

circumstances. An institution shall act in good faith, with the care that an ordinarily prudent

person in a like position would exercise under similar circumstances, in:

(a) Selecting an agent;


(b) Establishing the scope and terms of the delegation, consistent with the purposes of the

institution and the institutional fund; and

(c) Periodically reviewing the agent's actions in order to monitor the agent's performance and

compliance with the scope and terms of the delegation.

(2) In performing a delegated function, an agent owes a duty to the institution to exercise reasonable

care to comply with the scope and terms of the delegation.

(3) An institution that complies with subsection (1) of this section is not liable for the decisions or

actions of an agent to which the function was delegated.

(4) By accepting delegation of a management or investment function from an institution that is subject

to the laws of the Commonwealth, an agent submits to the jurisdiction of the courts of the

Commonwealth in all proceedings arising from or related to the delegation or the performance of

the delegated function.

(5) An institution may delegate management and investment functions to its committees, officers, or

employees as authorized by law of the Commonwealth other than KRS 273.600 to 273.645.

273.620 Release or modification of restrictions on management, investment, or

purpose.

(1) If the donor consents in a record, an institution may release or modify, in whole or in part, a

restriction contained in a gift instrument on the management, investment, or purpose of an

institutional fund. A release or modification may not allow a fund to be used for a purpose other

than a charitable purpose of the institution.

(2) The court, upon application of an institution, may modify a restriction contained in a gift

instrument regarding the management or investment of an institutional fund if the restriction has

become impracticable or wasteful, if it impairs the management or investment of the fund, or if,

because of circumstances not anticipated by the donor, a modification of a restriction will further

the purposes of the fund. The institution shall notify the Attorney General of the application, and

the Attorney General shall be given an opportunity to be heard. To the extent practicable, any

modification shall be made in accordance with the donor's probable intention.

(3) If a particular charitable purpose or a restriction contained in a gift instrument on the use of an

institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful, the court,

upon application of an institution, may modify the purpose of the fund or the restriction on the use

of the fund in a manner consistent with the charitable purpose expressed in the gift instrument.

The institution shall notify the Attorney General of the application, and the Attorney General shall

be given an opportunity to be heard.

(4) If an institution determines that a restriction contained in a gift instrument on the management,

investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve,

or wasteful, the institution, sixty (60) days after notification to the Attorney General, may release

or modify the restriction, in whole or part, if:

(a) The institutional fund subject to the restriction has a total value of less than fifty thousand

dollars ($50,000);

(b) More than twenty (20) years have elapsed since the fund was established; and

(c) The institution uses the property in a manner consistent with the charitable purposes

expressed in the gift instrument.


273.625 Reviewing compliance with KRS 273.600 to 273.645.

Compliance with KRS 273.600 to 273.645 is determined in light of the facts and circumstances existing at

the time a decision is made or action is taken, and not by hindsight.

273.630 Application of KRS 273.600 to 273.645 to existing institutional funds.

KRS 273.600 to 273.645 apply to an institutional fund existing on or established after July 15, 2010. As

applied to institutional funds existing on July 15, 2010, KRS 273.600 to 273.645 govern only decisions

made or actions taken on or after that date.

273.635 Relation of KRS 273.600 to 273.645 to the Electronic Signatures in Global

and National Commerce Act.

KRS 273.600 to 273.645 modify, limit, and supersede the Electronic Signatures in Global and National

Commerce Act, 15 U.S.C. secs. 7001 et seq., but does not modify, limit, or supersede Section 101 of that

act, 15 U.S.C. sec. 7001(a), or authorize electronic delivery of any of the notices described in Section 103

of that act, 15 U.S.C. sec. 7003(b).

273.640 Uniformity of application and construction of the Kentucky Uniform

Prudent Management of Institutional Funds Act.

In applying and construing this uniform act, consideration shall be given to the need to promote uniformity

of the law with respect to its subject matter among states that enact it.

273.645 Short title for KRS 273.600 to 273.645.

KRS 273.600 to 273.645 may be cited as the Kentucky Uniform Prudent Management of Institutional

Funds Act.

Effective: July 15, 2010

Documents

Investment Policy - Aashe · Berea College Investment Policy Page 2 INTRODUCTION The mission of Berea College is virtually unique in higher education in America. The College, founded